14. In March 1992, the Government published a White
Paper setting out its proposals for a National Lottery.[35]
That paper considered the merits of a National Lottery and established
the principles that the proceeds of such a lottery should be spent
on good causes and that lottery funds should be additional to
the main areas of public expenditure.[36]
The following year, the National Lottery etc. Act 1993 prescribed
that the National Lottery would have a private sector operator
and established the Office of the National Lottery (Oflot) as
the regulator, and the National Lottery Distribution Fund (NLDF)
to hold the proceeds to be dispensed by the designated distribution
bodies. The Director General of Oflot was charged with maximising
proceeds to good causes, protecting players and ensuring the probity
of the operation. In addition, the regulator was required, with
the help of a panel of selection, to select the operator.

16. The conduct of the Director General came under
increasing scrutiny following the award of the licence. He was
criticised by the Committee of Public Accounts for his acceptance
of free travel from GTech during the first competition and for
being less "active and vigorous" in his dealings with
Camelot than might be expected of a regulator.[38]

17. Oflot was replaced by the National Lottery Commission
(NLC) in April 1999 under the provisions of the National Lottery
Act 1998, although that Act did not change the fundamental structure
of a private operator or the duties of the regulator to ensure
the propriety of the Lottery, protect the interests of participants
and maximise the returns to the good causes. The National Lottery
Commission's functions are to select the operator, license games
and enforce the provisions of the licence.[39]

19. The Commission has been criticised for its dual
roles of day-to-day regulator and promoter of the National Lottery.[42]
The Commission does not perceive a conflict between those tasks,
which it considered it had carried out satisfactorily.[43]
Lord Burns, Chairman of the National Lottery Commission, said
that he was "not aware of any serious conflicts of interest"
between regulation and promotion of the Lottery.[44]
He regarded the framework in which the Commission worked as adequate
and any changes to its responsibilities to be a matter for Government
and Parliament, not the Commission.[45]
Lord Burns acknowledged that the day-to-day regulation of the
Lottery and the selection of the new operator were different tasks
and that it was legitimate to ask whether those two tasks should
be performed by the same organisation and the same Commissioners
and required the same skills.[46]

20. Over the course of its first seven-year licence,
Camelot is committed to returning 50 per cent of sales income
in prizes.[47]
That 50 per cent is divided into approximately 45 per cent returned
in prizes for each main draw, and approximately 5 per cent that
the operator may reserve for future Super Draws. Approximately
60 per cent of Instants sales are returned as prize money.[48]
The actual proportion of sales paid out as prizes each week varies
depending on the sales of the various games in the National Lottery
portfolio.[49]
The main jackpot comprises 52 per cent of the prize fund. The
average winning jackpot ticket has been £2,033,784 per individual
ticket, and the average individual jackpot win has been £607,284.[50]
Prizes less than £200 are described as "chatters",
in that they stimulate discussion and excitement amongst players.
Prizes below £10 are known as "churners", because
the operator assumes that players will reinvest all such small
prizes straight back into the Lottery.[51]

22. Initially, the National Debt Office invested
National Lottery funds in cash-based instruments, such as Treasury
Bills and loans to local authorities. It has subsequently become
apparent that the balance in the National Lottery Distribution
Fund would be sufficient to invest in longer-term, two to three
year gilts, which should increase the rate of return.[57]
The distributors welcomed this change to the management of the
Fund.[58]
We welcome the National Debt Office's moves to improve the
returns to the Fund within the restrictions of its directions.
However, Lottery proceeds are held in trust and it would not be
appropriate for them to be placed in high-risk investments in
an attempt further to improve the returns for good causes.

25. The operator receives 4 per cent of the proceeds
of sales to cover operating costs and 1 per cent of sales as profit.
The precise proportion of sales taken as profit has varied during
the course of the licence and was higher at the start of the period,
principally to cover Camelot's initial costs.[65]
Camelot's operating costs and profits since the Lottery's launch
are £1,585 million.[66]
Profit for 2000 was £38.5 million.[67]

26. Camelot was criticised for the amount of profit
it was taking from the operation of the Lottery, and in particular
the payment of bonuses to senior managers in the organisation.
Sir George Russell, Chairman of Camelot, accepted that the timing
of the bonuses could have been handled better, but did not believe
that any of the senior managers had been paid too much.[68]
According to Camelot its profits during the first licence period
were justified because of the risk to shareholders through the
costs of setting up the Lottery as a going concern. The profits
were capped and equated to one month's operation of the Lottery.[69]
Camelot's profits were higher than expected because sales were
higher than expected.